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There is a mathematically based definition of a perfect market. It’s only an approximation of real life, but it’s heavily used: https://www.investopedia.com/ter
by speedplane 5y ago
There is a mathematically based definition of a perfect market. It’s only an approximation of real life, but it’s heavily used: https://www.investopedia.com/terms/p/perfectcompetition.asp https://www.investopedia.com/terms/p/perfectcompetition.asp
- WalterBright 5y agoYour reference says: "Companies earn just enough profit to stay in business" which contradicts your comment: "in a “perfect” market there cannot be profits"
- mhh__ 5y agoI think the idea is that in the limit T->inf the profits go to zero.
- WalterBright 5y agoThat's not what the referenced definition of a "perfect" market says. Besides, who would run a business that could not make a profit?
- mhh__ 5y agoI've had this exact discussion with friends who study economics. The idea is that in a market with perfect flow of information (i.e. fairy land) then the profits tend to zero, I don't think this is a model for much of the real world if any.
- WalterBright 5y ago> then the profits tend to zero That makes as much sense as people working for nothing. I don't see any explanation for profits tending to zero, either. I wonder why "perfect" markets are even a thing. It has no applicability to actual markets. It offers no insight on actual markets, and offers no useful predictions about markets. It's about as useful a model as the Monopoly game is - i.e. none. I've seen many people claim that a "perfect" market is a requirement for free markets to work well. This isn't remotely true. "Perfect" markets and free markets have nothing in common. "Perfect" markets just seem to be a strawman put forth by people who argue that since "perfect" markets are unachievable, therefore free markets are no good.